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From Antitrust Law Daily, October 31, 2013

Urethane antitrust claim did not transfer with acquisition of assets

By Tobias J. Gillett, J.D., LL.M.

A manufacturer of polyurethane foam products did not obtain ownership of another manufacturer’s antitrust claim against producers of certain chemicals used in manufacturing polyurethane foam when it acquired certain manufacturing assets from the other manufacturer, the federal district court in Asheville, North Carolina has ruled (Flexible Foam Products, Inc. v. Vitafoam Inc., October 30, 2013, Reidinger, M.).

On November 28, 2005, Flexible Foam Products, Inc. (FFP) entered into asset purchase agreements with Vitafoam Incorporated, under which Vitafoam sold to FFP certain assets at Vitafoam’s manufacturing facilities in High Point, North Carolina, and Tupelo, Mississippi. The transferred assets included “all of the intangible rights and properties of Seller used exclusively in the Business,” and “all claims of Seller against third parties related exclusively to the Business.” The agreements excluded “all rights arising under any Seller Contract other than the Assumed Contracts” and “all intangible rights and property of Seller not used exclusively in the Business (provided that such rights and property are not material to the conduct of the Business as conducted immediately prior to Closing).”

In November 2004, a series of price fixing actions were brought against certain manufacturers almost exclusively responsible for the production of certain chemicals used in manufacturing polyurethane foam, actions that were later consolidated in the District of Kansas (In re Urethane Antitrust Litigation, 2:04-MD-1616-JWL). In July 2007, certain plaintiffs, including Vitafoam and FFP, reached a settlement with the defendant Bayer AG, and later settled with Huntsman International, LLC and BASF SE. FFP filed suit against Vitafoam, asserting that it had acquired the antitrust claims associated with purchases of certain chemicals attributed to the High Point and Tupelo facilities when it purchased the facilities from Vitafoam.

Ownership of the claim. The parties and the court agreed that the terms of the asset purchase agreements were clear and unambiguous. However, Vitafoam contended that the antitrust claim was an asset excluded from sale under a contract provision stating that Vitafoam retained all rights, claims, and causes of action connected with any contracts not assumed by FFP. The court declined to follow this argument, observing that “an antitrust claim is a tort claim,” and that “under North Carolina law, torts and statutory violations, by their very nature, are not ‘rights arising under’ contracts.”

However, the court also rejected FFP’s argument that, since antitrust damages had been allocated specifically to the High Point and Tupelo plants, those damages were some of “the intangible rights and properties of Seller used exclusively in the Business” that it had acquired. Vitafoam had purchased foam chemicals for four of its U.S. plants, including the High Point and Tupelo plants, but it only owned one antitrust claim. Therefore, that claim “could not be ‘exclusive’ to any of its individual foam manufacturing facilities.” Moreover, the antitrust claim was not “used” in the business, and was instead “a chose in action arising from tortious conduct entirely unrelated to the day-to-day operations.”

The court concluded that the antitrust claim fell within the provision addressing “all intangible rights and property of Seller not used exclusively in the Business (provided that such rights and property are not material to the conduct of the Business as conducted immediately prior to Closing),” and therefore Vitafoam retained ownership of it. The antitrust claim was “an intangible right and property of Vitafoam,” it was “never ‘used’ at the High Point or Tupelo facilities,” and it “was ‘not material to the conduct of the’ High Point and Tupelo plants.”

Unjust enrichment. FFP pleaded itself out of court on its unjust enrichment claim, according to the court. FFP had alleged that “Vitafoam has asserted ownership over Urethanes Claims that belong to FFP pursuant to the Agreements,” thus acknowledging “that the nature of this dispute is actually a claim for breach of an express contact.” Since the ownership of the antitrust claim was a matter addressed by the parties in their agreements, the court granted judgment to Vitafoam on the unjust enrichment claim.

Conversion. The court concluded that FFP’s claim that Vitafoam obtained the antitrust claim and the settlement proceeds without authorization and then converted them to its benefit also failed. The court had already found that Vitafoam retained ownership of the antitrust claim, and therefore Vitafoam could not have converted the claim. Moreover, intangible assets, such as the antitrust claim, could not be the subject of a conversion claim under North Carolina law.

Statute of limitations. Finally, even if FFP were the owner of the antitrust claim, its action would be barred by the North Carolina three-year statute of limitations for causes of action “upon a contract, obligation or liability arising out of a contract, express or implied.” Under North Carolina law, “the statute of limitations for a breach of contract action is not tolled pending the injured party’s discovery of the breach,” and “Vitafoam would have breached the Agreements the moment Vitafoam asserted any right to seek recovery from the Urethane cases via a claim it no longer owned.” Since Vitafoam had submitted its notice to the Bayer claims administrator on June 9, 2006, FFP’s 2012 action was barred.

The court rejected FFP’s argument that it was not injured until settlement proceeds were available, because the “antitrust claim was not a future interest.” A conveyance of the antitrust claim “would have occurred simultaneously with the transfer of all of the other assets to FFP.”

Finally, North Carolina’s “continuing wrong” doctrine did not halt the running of the statute of limitations. FFP contended that “Vitafoam’s later affirmative actions requesting proceeds from new settlements of separate claims against different entities were continuing violations that restarted the statute of limitations.” The court observed that “there was only one duty of performance, and thus, there could only be one such breach,” and under North Carolina law “a continuing violation is occasioned by continual unlawful acts, not by continual ill effects from an original violation.” Vitafoam’s enforcement of the antitrust claim was merely its benefit from the alleged breach, and therefore Vitafoam did not continually breach the agreements.

The case is No. 1:12-cv-105-MR-DLH.

Attorneys: Bradley Robert Love (Barnes & Thornburg LLP) for Flexible Foam Products, Inc. A. Ward McKeithen (Robinson, Bradshaw & Hinson, P. A.) for Vitafoam Inc.

Companies: Flexible Foam Products, Inc.; Vitafoam Inc.

MainStory: TopStory Antitrust NorthCarolinaNews

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