Petroplast Petrofisa Plasticos S.A. v. Ameron Int’l Corp., C.A. No. 4304-VCP (July 1, 2011).

This Chancery decision concerns a dispute over a technology-sharing relationship between Plaintiffs, Petroplast Petrofisa Plasticos S.A. and Petrofisa Do Brasil, Ltda., and Defendant, Ameron International Corporation.  Plaintiffs brought suit in January 2009 for breach of contract based on Ameron’s alleged failure to perform its obligations under the parties’ agreement.  The parties filed cross motions for summary judgment pursuant to Rule 56(d).

Issues Addressed

The court discussed several legal doctrines relevant to contracts, including: equitable estoppel; laches; inherently unknowable injuries; and fraudulent concealment.

Contract Interpretation

As in most contract cases, the parties disputed the scope of their respective obligations under the contract.  The court interpreted those obligations pursuant to the law of California — the place where the dispute arose — and found that extrinsic evidence would be required to determine the intent of the parties at the time the contract was formed.  Accordingly, contract interpretation was deemed to be an issue for trial.

Contract Modification

Ameron claimed that a discussion of terms in an email constituted a valid and enforceable modification of the original agreement.  California law requires that a contract modification be supported by new consideration.  The court found that Ameron did not provide any new consideration for the modification it claims is part of the contract.  Accordingly, the purported  modification was not enforceable under the terms of the original agreement.

Equitable Estoppel

Ameron further argued that even if the email was not a modification, the plaintiffs are equitably estopped from claiming Ameron breached the agreement.  Estoppel is a legal theory that employs equitable principles to satisfy the requirement that consideration must be given in exchange for the promise sought to be enforced.  There are four elements necessary to prove estoppel:  (1) a clear and unambiguous promise or representation; (2) actual reliance on that promise or representation; (3) that the reliance was reasonable and foreseeable; and (4) an injury caused by such reliance. Because the court was unable to make a determination as to material facts involving Ameron’s estoppel claim, the court denied summary judgment.

Third-Party Beneficiary

Petroplast argued that if it prevailed on its breach of contract claim against Ameron, then Petrofisa would be permitted to recover as a third-party beneficiary of the contract.  Again, the court looked to relevant California law, which states that a third party beneficiary can enforce a contract that was made expressly for the benefit of that third person.  The court further stated that “it is sufficient that the promisor must have understood that the promisee had such intent.”

Applying that logic, the court explained:

[A] person will be deemed a [third party beneficiary] where the circumstances indicate that the promisee—here, Petroplast—intended to give the purported [third party beneficiary]—here, Petrofisa—the benefit of the performance called for in the contract and the promisor—here, Ameron—understood that the promisee had such an intent.

The court found that Petrofisa qualified as a valid third-party beneficiary, and granted plaintiffs’ motion for summary judgment as to this issue.

Statute of Limitations and the Doctrine of Laches

Ameron argues that, under the relevant statute of limitations, Plaintiffs are time-barred from making a claim about an agreement to provide a prediction model. As a court of equity, the court generally analyzes questions of time bars and undue delay under the doctrine of laches.

While both statutes of limitations and laches serve as time bars to lawsuits, laches does not turn on a specific time period:

Rather, laches bars a plaintiff from proceeding if he waited an unreasonable length of time before asserting his own claim and the delay unfairly prejudiced the defendant.  To prevail on a laches defense, a defendant must prove that: (1) the plaintiff had knowledge of his claim; (2) he delayed unreasonably in bringing that claim; and (3) the defendant suffered resulting prejudice.

Statutes of limitations do not control in matters of equity, but the court will apply the analogous statute of limitations in cases “which fall within that field of equity jurisdiction which is concurrent with analogous suits at law.” Typically, Delaware courts find a legal claim to be analogous to an equitable claim when “the only difference is, that the one remedy may be enforced in a court of law, and the other in a court of equity.”

Borrowing Statute

In this case the cause of action arose outside of Delaware but litigation was initiated in Delaware, thus the court looked to Delaware’s borrowing statute to determine the applicable limitations period.  The court is required to apply the shorter limitation period of either Delaware or the state/country where action arose, which, in this case, required the use of Delaware’s three-year statute of limitations for breach of contract.

Applying Delaware’s three-year period to its laches analysis, the court found that the action accrued in July 2005.  Since the tolling agreement entered into by the parties was not executed until September 2008, and the original complaint was not filed until January 22, 2009, the plaintiffs’ claim was time-barred.

Doctrines Inherently Unknowable Injuries and Fraudulent Concealment

Nonetheless, the court would not dismiss the claim as time-barred if plaintiffs could provide valid justification for failing to file suit prior to the end of the analogous limitations period.  The Plaintiffs urged the court to find that the doctrine of inherently unknowable injuries, also known as the “discovery rule,” applied because plaintiffs could not have discovered the cause of action until the statute of limitations had run.

Further, the plaintiffs argued that the doctrine of fraudulent concealment, which tolls the statute of limitations where a defendant has fraudulently concealed facts necessary to put a plaintiff on notice of a breach, defeated the time bar in this action.

The court stated that there must be some affirmative act by the defendant that has either prevented the plaintiff from gaining knowledge of material facts or lead the plaintiff away from the truth for either doctrine to apply.  Because there were several materially factual issues about the defendant’s affirmative acts, the court denied summary judgment.