                NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                           File Name: 12a0751n.06

                                      Nos. 11-5430, 11-5498

                          UNITED STATES COURT OF APPEALS
                               FOR THE SIXTH CIRCUIT
                                                                                       FILED
                                                                                   Jul 11, 2012
DREXEL CHEMICAL COMPANY,                                 )
                                                                             LEONARD GREEN, Clerk
                                                         )
       Plaintiff-Appellant Cross-Appellee,               )
                                                         )         ON APPEAL FROM THE
               v.                                        )         UNITED STATES DISTRICT
                                                         )         COURT FOR THE WESTERN
ALBAUGH, INC.,                                           )         DISTRICT OF TENNESSEE
                                                         )
       Defendant-Appellee Cross-Appellant;               )
                                                         )


BEFORE: GIBBONS, ROGERS, and COOK, Circuit Judges.

       ROGERS, Circuit Judge. Drexel Chemical Company and Albaugh, Inc. entered into a

written Agreement whereby Albaugh could make use of Drexel’s registration to import and sell a

pesticide called atrazine, which cannot be sold in the United States absent such registration. Drexel

and Albaugh dispute several terms of the Agreement governing their relationship, as well as the

factual question of when the Agreement was terminated. The district court incorrectly interpreted

the Agreement as unambiguously providing that Albaugh was not required to make partial

reimbursement for certain payments made after Albaugh terminated the Agreement, but relating to

the period that the Agreement was in effect. Since the Agreement is ambiguous on this point, a

remand is necessary to determine the intention of the parties. Apart from this interpretation issue,

the district court committed no reversible error. The district court did not clearly err in its

determination of when the Agreement terminated. The district court was correct in finding Albaugh
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Drexel v. Albaugh


liable for half of a $1.5 million payment that Albaugh has contested, because that payment was made

“in order to maintain the registration” under the terms of the Agreement. Finally, the district court

did not abuse its discretion in assigning prejudgment interest.

                                                  I.

       Atrazine is a pesticide developed by the predecessors of Syngenta Crop Protection, Inc., a

group that included Novartis Crop Protection, Inc. Pesticide manufacturers who wish to sell

products in the United States that contain atrazine are required under the Federal Insecticide,

Fungicide and Rodenticide Act (FIFRA), 7 U.S.C. § 136a, to register their products with the

Environmental Protection Agency (EPA). The original registrant of a product conducts tests to

confirm, among other things, that the product will not cause “unreasonable adverse effects on the

environment,” 7 U.S.C. § 136a(c)(5)(D), which in turn are submitted to the EPA. Subsequent

applicants may use that data in their own applications for registration, a process referred to as

“follow-on registration.” Follow-on registration is only allowed if the subsequent applicant offers

to pay data compensation to the original registrant; it is this data compensation that allows the

follow-on registrant to rely on the data in their applications. 7 U.S.C § 136a(c)(1)(F)(iii).

       Novartis was the original registrant of atrazine with the EPA. Drexel Chemical Company

successfully negotiated with Novartis to obtain follow-on registration, allowing Drexel also to sell

atrazine-containing products in the United States. In 1998, Albaugh, Inc. wished to begin selling

atrazine, but could not reach an agreement with Novartis as to how much data compensation would

be appropriate. Instead, Albaugh approached Drexel, whose registration with Novartis also had a


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“follow-on” provision allowing other companies to use it. Drexel and Albaugh agreed that Albaugh

would make use of Drexel’s registration, and in exchange Albaugh would share in Drexel’s data

compensation obligation to Novartis. The companies entered into a written Agreement on December

7, 1998. Paragraph 2(iii) of the Agreement stated that Albaugh agreed to pay a lump sum of

$750,000, and “[i]n addition, Albaugh shall pay fifty percent (50%) of the costs of all future

payments that Drexel makes to Novartis in the future as data compensation in order to maintain the

Registration.”

       Albaugh completed its $750,000 payment to Drexel on July 9, 2002. Under Paragraph 7 of

the Agreement, Albaugh was allowed to terminate the Agreement at any time after that point.1 The

parties dispute when the Agreement was terminated. Albaugh claims that it terminated the

Agreement on July 16, 2006, through an oral declaration by its President to Drexel’s Chairman and

CEO. Drexel claims that Albaugh terminated the Agreement by sending a letter on September 29,

2006. The letter stated:

       Pursuant to Section 7 of the above referenced Agreement dated December 7, 1998,
       Albaugh, Inc. hereby terminates said Agreement, and further requests that, within 30
       days of the date of this letter, Drexel return, and certify in writing that it has returned
       and retains no copies of, all of Albaugh’s and Atanor’s confidential information that
       Drexel received pursuant to this Agreement.


       1
           Paragraph 7 reads in full:

       This Agreement shall terminate, and Albaugh shall not be obligated to make any
       further payments hereunder, upon EPA’s refusal to amend the CSF for the
       Registration in the manner set forth in this Agreement. Albaugh may also terminate
       this agreement at any time after final payment of the $750,000 payment called for
       under paragraph 2(i) hereof.

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       During the years that Albaugh made use of Drexel’s registration, Albaugh made no payments

to Drexel related to the data compensation. Nor did Drexel make any payments to Novartis or its

successor, Syngenta. Then, in September 2006, Syngenta informed Drexel that Drexel owed over

ten million dollars in data compensation pursuant to a Special Review conducted in 2004 and 2005

by the EPA consistent with FIFRA’s mandates. Drexel had been aware that this review was being

conducted and in fact had made offers to pay during this period, consistent with the requirements of

FIFRA. Drexel disputed the amount Syngenta claimed was owing, but decided to pay a portion of

it. Drexel in turn sent an invoice to Albaugh dated September 25, 2006, for 50% of the payment it

was about to make to Syngenta. On September 26, 2006, Drexel paid Syngenta $1.5 million. Three

days later, Albaugh sent the termination letter mentioned above.

       On May 15, 2007, Syngenta commenced arbitration proceedings with the American

Arbitration Association pursuant to FIFRA because it could not reach an agreement with Drexel

regarding the proper amount of data compensation owed. In March 2008, the arbitration panel

determined that Drexel owed approximately $4 million to Syngenta as data compensation through

2008. The panel gave Drexel credit for the $1.5 million already paid, leaving an award of

approximately $2.5 million. Drexel in turn filed suit against Albaugh, arguing that it owed Drexel

half of this amount, in addition to half of the $1.5 million already paid.

       Drexel originally filed a complaint in Tennessee court, but Albaugh removed the case to

federal court on diversity grounds. Drexel’s complaint alleged breach of contract and requested a




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declaration of Albaugh’s obligation to pay its share of data compensation costs. Both parties filed

motions for summary judgment.

       In its summary judgment ruling, the district court found that Albaugh was required to pay

50% of any payment made by Drexel to Novartis/Syngenta before the termination of the Agreement,

but that there existed a genuine issue of material fact as to when the Agreement was terminated, and

so a trial would be necessary. The parties agreed that it was appropriate to apply Tennessee law to

the Agreement.

       The district court also determined that Albaugh was not liable for any money paid by Drexel

to Syngenta after termination of the Agreement. The district court found the language of the

Agreement unambiguous on this point. The court read Paragraph 2(iii), with its requirement for

paying “all future payments,” in tandem with Paragraph 7, which allowed for termination after the

initial $750,000 was paid, to mean that “when Albaugh terminated the Agreement in 2006, it was

only required to reimburse Drexel for fifty percent of any payments Drexel made to Syngenta up to

the point of termination.” To find otherwise, according to the district court, would render Paragraph

7 meaningless: “[T]he only conceivable purpose for the termination clause in paragraph 7 was to

relieve Albaugh of further obligations to pay Drexel for data compensation payments that Drexel

might make to Syngenta after contract termination.” The district court found that “Albaugh’s

obligation to pay Drexel under paragraph 2(iii) could only be triggered by a payment,” not an offer

to pay or any other action.




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       The district court rejected Albaugh’s argument that the $1.5 million that Drexel had paid to

Syngenta toward data compensation, because it was assertedly voluntary, was not made “in order to

maintain the Registration” under Paragraph 2(iii). The district court pointed out that the language

of the Agreement does not read “necessary to maintain the Registration,” and the money was indeed

made for the purpose of maintaining the registration. The district court concluded that under the

ordinary meaning of the Agreement’s language, “so long as Drexel’s payment was made ‘in order

to’ or ‘for the purpose of’ maintaining the registration, that payment would trigger Albaugh’s

obligation to pay Drexel fifty percent of the payment.”

       A bench trial was held on the question of the date of the Agreement’s termination. Four

witnesses testified, including Albaugh’s President and Drexel’s CEO, the two individuals who had

the July 2006 conversation at issue. The conversation took place during a meeting of the Chemical

Producers and Distributors Association, which both individuals attended. The conversation was not

officially scheduled. Drexel’s CEO testified that the conversation lasted no more than five minutes.

According to him, Albaugh’s President said to him, “Bob, we’re thinking about getting out of the

atrazine market.” There was no follow-up to the conversation until the demand for payment to

Syngenta was sent in September. Albaugh’s President testified that he had made the decision to exit

the atrazine market before the meeting and deliberately sought out Drexel’s CEO to convey that

information. He testified that such behavior was common in the industry, that the conversation

lasted fifteen minutes, and that he informed Drexel’s CEO “that we were exiting the atrazine




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business and would sell our existing stocks, that we were terminating our contract with him.”

Evidence was also presented regarding behavior by both parties before and after the conversation.

        At the conclusion of the trial, the district court found as a matter of fact that Drexel’s CEO’s

version of events regarding the July 16 meeting was more credible, and that Albaugh’s President had

only told him “that Albaugh was ‘thinking’ about exiting the atrazine business.” The district court

supported its finding by pointing out that there was no evidence of planning the meeting, no evidence

of follow-up after the meeting, and no reference to the meeting in the September 29 letter. The

district court therefore concluded that Albaugh did not terminate the Agreement until September 29,

2006, and so owed Drexel 50% of the payment Drexel had made to Syngenta on September 26,

2006, i.e., $750,000.

        The district court also awarded Drexel prejudgment interest on the $750,000, calculated from

the date Drexel first sent the invoice at a rate of 7.5%. This amounted to $253,798.76. The district

court relied on Tenn. Code § 47-14-123, which allows a court to award interest “in accordance with

the principles of equity.” The district court justified calculating the interest from the September 2006

date rather than from when the complaint was filed on July 18, 2008, because the court found that

“Drexel was not inexcusably dilatory in pursuing its claim and, to the contrary, promptly made

Albaugh aware that it was obligated to pay its fifty percent share.” Drexel had requested 10%

interest, the statutory maximum, but the district court said that rate was “not warranted, and that

7.5% is the appropriate rate.”

        Drexel and Albaugh both appeal.


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                                                II.

A. Future Payments under the Agreement

       The language of the Agreement is ambiguous as to whether Albaugh is responsible for

payments that Drexel makes after the termination of the Agreement but relating to the period that

the Agreement was in effect. The single sentence that discusses the issue states that Albaugh is

responsible for 50% of “all future payments” made “as data compensation in order to maintain the

Registration.” The sentence is silent as to the outer limit of “future.” The language could mean

payments made while the Agreement is in effect—as the district court read it—but it could

alternatively mean payments made for data collected while the Agreement is in effect (or payments

otherwise related to that time period), even if the payments are made after the Agreement is

terminated. This second interpretation gains some strength from the fact that the “future payments”

are further described as those “Drexel makes to Novartis in the future as data compensation.” The

repetition of “future” suggests that this requirement extends beyond the date of Agreement

termination. The language of the Agreement could even be said to have no outer limit for when

Albaugh’s payment obligations end, if read strictly literally. Under Tennessee law, contractual

language is ambiguous when “it is of uncertain meaning and may fairly be understood in more ways

than one.” Allstate Ins. Co. v. Watson, 195 S.W.3d 609, 611 (Tenn. 2006) (quoting Farmers-Peoples

Bank v. Clemmer, 519 S.W.2d 801, 805 (Tenn.1975)). This contract’s language fits that description.

       Because the Agreement is ambiguous, further factual development is necessary. Under

Tennessee law, when there are multiple plausible interpretations of contractual terms, courts should


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not rely solely on a literal interpretation of the language to determine the contract’s true meaning,

but rather should apply rules of construction to determine the intent of the parties, including using

extrinsic or parol evidence. See Watson, 195 S.W.3d at 611-12. In this case, further evidence may

inform the proper interpretation of “future.” We do not prescribe what evidence in particular should

be put forth, but it could possibly include information about how certain terms are understood in the

agricultural chemical business, particularly in the FIFRA regulatory context, the nature of the

payments made to Syngenta, and previous agreements or correspondence between Drexel and

Albaugh—whether or not the Agreement itself was being discussed. Evidence supporting Drexel’s

allegation that Albaugh continued to rely on Drexel’s registration after the Agreement was

terminated may also be taken into consideration.

       Albaugh’s explanation for why the Agreement is unambiguous is not convincing. Reading

the Agreement to cover payments made after termination does not render Paragraph 7’s second

sentence meaningless. There are a number of reasons that might explain why the sentence was

included in the Agreement, including to provide Albaugh with a means to exit the Agreement, or to

prevent holding Albaugh responsible for data compensation ad infinitum. In addition, the first

sentence of Paragraph 7 says that the Agreement “shall terminate, and Albaugh shall not be obligated

to make any further payments hereunder,” if EPA registration does not go through successfully.

Reference to such further payment obligations is absent from the second sentence, which is the

sentence in question here. The absence of this phrase in the second sentence makes it less plain that




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termination by Albaugh after the $750,000 was paid means absolutely no post-termination payment

obligation could arise. Factual development is required to interpret these provisions.

B. Date of Agreement Termination

        The district court’s conclusion that the Agreement was terminated on September 29, 2006,

rather than on July 16, 2006, was not clearly erroneous, as Albaugh argues. The evidence could have

supported either side’s account of what was discussed at the July 16 meeting. Evidence supporting

the district court’s conclusion included: testimony from Drexel’s CEO, which the district court found

to be more credible than that of Albaugh’s President; the lack of any evidence from Albaugh

regarding planning for a termination meeting apart from testimony; the lack of any written evidence

that there was follow-up regarding what was discussed; and the language of the September 29 letter,

which made no reference to the meeting and suggested that the letter itself was meant to effect the

Agreement’s termination. Although evidence was presented that could have led a factfinder to the

opposite conclusion as well, absent clear error, it is not our place to second-guess the district court’s

determination that Drexel’s account was more credible than Albaugh’s and was supported by more

evidence. The district court’s resolution of this factual issue was not clearly erroneous.



C. Nature of $1.5 Million Payment

        The $1.5 million payment that Drexel made to Syngenta on September 26, 2006, was made

“in order to maintain the Registration,” and so under the Agreement Albaugh was liable for half of

it, regardless of how the interpretational issue in Part A is resolved. The district court did not clearly


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err in the factual findings undergirding this assessment, and its interpretation of the contractual

language is correct. Drexel received a request for payment from Syngenta under the data

compensation scheme outlined in FIFRA. Drexel paid $1.5 million toward this amount. The $1.5

million was therefore made for the purpose of maintaining the registration, and therefore triggered

Albaugh’s obligations under the Agreement.

       Albaugh’s characterization of the payment as “voluntary” is both inaccurate and somewhat

beside the point. As the district court pointed out, “[c]ooperation in the data compensation scheme

of FIFRA is essential to maintaining the product registration,” and failure to participate can lead to

suspension of the registration under 7 U.S.C § 136a(c)(2)(B)(iv). Drexel’s payment qualified as

participation; indeed, the arbitration panel ultimately credited it toward the amount Drexel owed

Syngenta as data compensation. The fact that failure to make such a payment may not have led to

an immediate loss of registration does not lessen its importance or keep it from being made “in order

to maintain the Registration.” The Agreement does not refer to payments necessary to maintain

registration. A contract is enforced “according to the ordinary meaning of its words.” Moore v.

Moore, 603 S.W.2d 736, 739 (Tenn. Ct. App. 1980). The ordinary meaning of the words in the

Agreement includes the $1.5 million payment. Although Albaugh argues that the Agreement refers

to payments “required as part of [an] existing data compensation agreement between Drexel and

Syngenta . . . [or an] existing data compensation arbitration decision between Drexel and Syngenta,”

the ordinary meaning of the words in the Agreement will not bear these additional requirements that

Albaugh seeks to impose.


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D. Prejudgment Interest Award

       The district court acted within its discretion when it concluded that Drexel was not

inexcusably dilatory in bringing suit against Albaugh, and so calculated prejudgment interest from

the date Drexel sent an invoice to Albaugh, i.e., September 26, 2006. Albaugh’s argument on this

point is little more than a statement to the contrary, that Drexel was inexcusably dilatory. Albaugh

raised the same argument below, where the district court was free to reject it, as it did. Under

Tennessee law, awards of prejudgment interest depend on “whether the award of prejudgment

interest is fair, given the particular circumstances of the case.” Myint v. Allstate Ins. Co., 970

S.W.2d 920, 927 (Tenn. 1998). The district court was briefed on the particular circumstances of this

case, and concluded that Drexel had acted reasonably and deserved the prejudgment interest

awarded. No abuse of discretion took place.

                                                III.

       We remand this case for further proceedings consistent with this opinion.




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