Opinion
C.A. No. 99C-06-041-FSS
Submitted: December 4, 2001
Decided: September 4, 2002
Upon Plaintiff's Motion for Summary Judgment — DENIED and Upon Defendant's Cross-Motion for Summary Judgment — GRANTED
Richard D. Allen, Esquire Morris, Nichols, Arsht Tunnell, Stephanie L. Nagel, Esquire, McDermott Will Emery, Attorneys for Plaintiff.
Frederick L. Cottrell, III, Esquire, Richards Layton Finger, P.A., Attorney for Defendant.
OPINION AND ORDER
This case is unusual substantively and procedurally. Substantively, it is a contract dispute between sophisticated, well represented, equal bargaining partners who negotiated at arm's length and consummated a deal, all the while tacitly disagreeing about an important provision. The dispute amounted to millions of dollars, but that was not enough to spoil a deal involving hundreds of millions. Both sides wanted the contract, so they seemingly agreed to disagree and pressed on. The court suspects that, unable to come to terms about the disputed point and each side believing in its position, the parties were content to let a court tie up the loose end.
Broadly, the contract concerns one corporation's purchase of another corporation's subsidiary. Both sides knew the transaction might precipitate a substantial federal tax. Before, during and after the contract's formation, each side assumed or even insisted that the other would take the tax hit related to the seller's, Weston's, excess loss account in its subsidiary's stock. In more specific, but still simplified terms, the parties' disagreement focuses on whether the tax is one "relating to" the months between the contract's execution and closing, the so-called "stub period." If it is, under the contract the buyer, Domtar, must pay the tax.
Procedurally, the case is different because the court has been cross-designated and is sitting as both a court of law and equity. Delaware proudly guards the historic and important distinction between legal and equitable jurisdiction. That makes this a very rare departure from the typical. In the end, however, the court will decide the matter without resorting to its fleeting, equitable powers.
The case has one other quirk. The parties agree that the contract is controlled substantively by the laws of Canada. Both sides have presented submissions by reputable experts on Canadian law. Fortunately for everyone, especially the court, the parties agree that Canada's and Delaware's contract laws essentially are equivalent and the parties also seem to agree on the law. They disagree about which principles apply, but ultimately the case turns on the contract's plain language. Unfortunately, discerning the plain meaning of an agreement concerning corporate taxes is not so simple. In any event, for comfort and expedience the court will cite to Delaware authorities.
I.
Ignoring their complex structures, the parties are Weston and Domtar Industries. Both are sophisticated, profitable, multi-national entities doing business under various corporate and partnership forms. At all times they are represented by top flight lawyers, tax advisors and investment bankers. This bears mention because this is not a contract case where one side can complain about the other's advantages. To be sure, there are alternative claims made here about misrepresentation and the like. Ultimately, however, this case simply concerns a disagreement over the meaning of two chosen words, "relating to."
Weston, primarily a food company, originally owned E.B. Eddy Paper, Inc., "Eddy," which was part of the worldwide paper industry. Like its parent, Eddy also had a structure comprised of subsidiaries. One of those was Port Huron Fiber. As explained in detail later, on its consolidated tax return Weston used Port Huron Fiber's losses to shelter some of Weston's other income. In the process, Weston established a corresponding "excess loss account" for tax purposes. When Weston sold Eddy, the federal tax collector was entitled to recapture from Weston's consolidated income the uncollected tax associated with Weston's excess loss account in Eddy's stock. That recapture payment is this litigation's subject.
The direct chain of events leading to this litigation began in 1998, when Domtar, another paper industry corporation, approached Weston to buy Eddy. The parties, "in consultation with their investment advisors, agreed in principle" to the deal and the parties signed a share purchase agreement. Domtar would buy 100 % of Eddy's stock from Weston for consideration totaling $804,000,000 (Canadian), which then amounted to roughly a half billion U.S. dollars. Among its many provisions, the 95 page agreement contained a several paragraph "Schedule F" addressing federal taxes.
The parties have litigated extensively about the share purchase agreement's creation, step-by-step. While they disagree about some of the facts and their implications, the parties largely agree about what happened. Because the agreement speaks plainly for itself, the court does not have to decide precisely who did what. Nevertheless, the court will recap the facts surrounding the tax schedule's negotiation because they put the case in context and help explain the outcome.
In summary, Weston drafted the tax schedule, which went through five versions. The first three drafts, all prepared by Weston, squarely placed on Eddy, i.e. Domtar, responsibility for "any income tax liability as a result of the inclusion of any excess loss account in [Weston's] . . . consolidated federal income tax return." Drafts four and the executed, final draft, included the disputed language, discussed below.
Over six months after the agreement was signed and eleven days before closing, Weston offered another version of the agreement consistent with its original drafts and better supporting its current stance. Domtar rejected Weston's last version of the tax schedule. Apparently, as soon as Domtar refused to modify the signed agreement, Weston simply took the money from Eddy. Domtar protested and Weston put back the disputed amount. The deal then closed without further incident.
All-in-all, the history surrounding the contract's formation tends to support Domtar's claim that it never agreed to pay the tax. Weston wrote the disputed language. Domtar manifested its disagreement and Weston did not force the issue.
The court appreciates that Domtar's rejecting the final version does not prove that Domtar had not agreed to it by then. A fact finder might conclude that Domtar's refusal to accept Weston's last version merely was Domtar's first renege. But the court views the rejected draft as a belated attempt by Weston to reestablish its position, rather than as Domtar's starting to back away from a promise. Furthermore, while Weston's last-minute, aborted attempt at self-help supports its claim that it held Domtar responsible for the taxes, the court cannot see how Weston's final decision to back off and close the deal helps it now. Regardless, it does not really matter because the court is not granting summary judgment based on the facts.
One other event bears mention before the court presents the case's procedural history, the tax law, the tax agreement's disputed language and the court's analysis. After closing, at Domtar's request, Weston made an Internal Revenue Code § 338(h)(10) election. For tax purposes the election transformed Weston's sale of Eddy's stock into a sale of Eddy's assets. At the same time, the election eliminated Weston's excess loss account and brought to the fore a corresponding, taxable, negative capital account. The federal tax associated with the excess loss account and the negative capital account were about the same. The election is not dispositive, but it underlies one of Weston's arguments addressed below.
II.
Procedurally, on June 2, 1999, Weston filed a breach of contract and declaratory judgment action in Superior Court. On November 16, 1999, to preserve its equitable defenses and counterclaims, Domtar filed an action in the Court of Chancery. Domtar's Chancery filing is similar to the Answer it filed, along with a counterclaim, in Superior Court on July 27, 1999. On January 19, 2000, the parties requested that either the Chancellor or President Judge designate that the case's law and equity issues both be heard in either the Superior Court or in Chancery. So Delaware's Chief Justice made the cross designation.
The parties have filed cross-motions for summary judgment. They agree that the share purchase agreement is clear and the case is ripe, or by now overripe, for summary disposition. But of course, each side argues that the contract must be read in its favor and it is entitled to summary judgment. The parties argue alternatively that the extrinsic evidence supports their positions. Again, while the extrinsic evidence favors Domtar, it does not form a basis for this decision.
III. A. Taxes — The Excess Loss Account
To understand this case, it is not necessary to understand the tax underlying the dispute. But knowing something about the tax makes it easier to see how the contract's terms clearly favor Domtar's position. Generally, the twenty-five companies that Weston owned made money. One Weston subsidiary in particular, Port Huron Fiber, was an exception; through Eddy it had invested in a start-up, limited partnership, Blue Water Fiber Limited, which consistently lost money. Blue Water Fiber's losses were attributable for tax purposes to its partners, including Port Huron Fiber. In turn, the losses attributable to Port Huron Fiber were attributable to its parent, Eddy. Because Eddy was part of Weston's consolidated group, Weston could use Eddy's losses in Port Huron Fiber to knock out some of Weston's other taxable income.
Over time, Blue Water Fiber's losses exceeded Port Huron Fiber's investment in the partnership. Thereafter, Weston continued to use those losses to offset income from other members of its consolidated group. The tax code permitted that, but the amount by which Weston's deductions exceeded its basis in Port Huron became Weston's "excess loss account."
If the corporate parent were allowed to use its subsidiary's losses to shelter income, even beyond its capital investment, and if it also then were allowed to sell the subsidiary without accounting for the negative amount, the parent could avoid some income tax altogether. So when a parent carrying an excess loss account in a subsidiary's stock sells the subsidiary, the tax law calls for a recapture and the excess loss account becomes taxable at the moment of sale.
B. The § 338(h)(10) Election
Several months after the sale went through, Domtar asked Weston to elect to treat Eddy's sale as a sale of assets for tax purposes, rather than as a sale of shares of Eddy's stock. That sort of election was consistent with Section 338(h)(10) of the Internal Revenue Code and paragraph 9 of the contract. Weston made the election in April 1999, which related back to the closing date.
Section 338(h)(10) provides, in relevant part:
(10) Elective recognition of gain or loss by target corporation, together with nonrecognition of gain or loss on stock sold by selling consolidated group.--(A) [A]n election may be made under [certain regulations] if — (I) the target corporation was, before the transaction, a member of the selling consolidated group, and (ii) the target corporation recognizes gain or loss with respect to the transaction as if it sold all of its assets in a single transaction, then the target corporation shall be treated as a member of the selling consolidated group with respect to such sale, and . . . no gain or loss will be recognized on stock sold or exchanged in the transaction by members of the selling consolidated group.
(B) Selling consolidated group. For purposes of subparagraph (A), the term "selling consolidated group" means any group of corporations which (for the taxable period which includes the transaction) — (I) includes the target corporation, and (ii) files a consolidated return. [S]uch term also includes any affiliated group of corporations which includes the target corporation (whether or not such group files a consolidated return).
The election had various tax consequences. One thing it accomplished was to eliminate the tax collector's concern with the excess loss account. That is because selling Eddy's assets left its shares worthless. By the same token, however, the election triggered an obligation for the target corporation, Eddy, to recognize its gain on the sale of its assets. One way or another, whether it involved stock or assets, the sale's effective or closing date was a day of tax reckoning.
C. The Agreement
Several paragraphs of the purchase agreement touch on taxes. For example, paragraph 9 of the tax schedule generally introduces the possibility of the election. The pivotal provisions of the agreement relating to federal taxes are the tax schedule's paragraphs 2 and 10. Paragraph 2 states:
[Weston] will include the income of Eddy for the period of January 1, 1998 up to and including the Effective Date (the "Stub Period") (including any excess loss accounts taken into income under Treasury Regulations § 1.1502-19) in [Weston]'s consolidated income tax return for 1998. [Domtar] shall cause Eddy to furnish tax information to [Weston] for inclusion in the [Weston]'s federal and state consolidated income tax returns for the Stub Period. [Domtar] agrees to provide [Weston] all information necessary for inclusion of Eddy in [Weston]'s consolidated federal tax return within ninety (90) days of the Effective Date. Eddy will reimburse [Weston] for the federal income tax relating to the Stub Period calculated as if Eddy was filing its return on a separate company basis. Eddy will gross-up any such federal income tax at the statutory rate of 35%. All state and local tax returns (whether for the period before or after the Effective Date) are the responsibility of Eddy.
Paragraph 10 states:
For greater certainty, if an election is made and filed with the IRS pursuant to the 338 Election with respect to the transfer of the transferred property, it is expressly agreed that all liabilities of Eddy prior to the Effective Date including but not limited to accrued vacation, workers compensation, environmental liabilities, sales deductions, customer complaint reserves, bad debt reserves, self insurance, pension liabilities, post retirees health costs and other reserves are assumed by and shall be the responsibility of [Domtar].
Weston claims that the tax triggered by its sale of Eddy's shares or assets to Domtar relates to the stub period because it was precipitated by the sale and imposed during the stub period. Therefore, Domtar is contractually obligated to reimburse Weston for Weston's resulting tax liability. Domtar counters, in essence, that when the contract is read logically and in context, it clearly means that a tax generated by Weston to recapture its past, unpaid taxes has no meaningful relationship to the stub period. The tax law merely happens to impose the tax at the stub period's last moment. Therefore, Domtar's reimbursement obligation only covers the taxes associated with Eddy's business activity in the temporal gray area between the agreement's signing and the transaction's effective date.
IV. A. Summary Judgment Standard
Delaware standards for summary judgment motions are clear. A motion for summary judgment is granted where there "is no genuine issue as to any material fact." It must be denied when evidence indicates that "there is reasonable indication that a material fact is in dispute or if it seems desirable to inquire more thoroughly into the facts in order to clarify the application of the law." Further, the court is required to view the facts in a light most favorable to the non-moving party.
Van Dyke v. Pennsylvania R.R., 86 A.2d 346, 349 (Del. 1952); Behringer v. William Gretz Brewing Co., 169 A.2d 249, 251 (Del. 1961); Matas v. Green, 171 A.2d 916, 918 (Del. 1961).
Ebersole v. Lowengrub, 180 A.2d 467, 468-469 (Del. 1962) rev'd in part and aff'd in part, 208 A.2d 495 (1965); Myers v. Nicholson, 192 A.2d 448, 451 (Del. 1963); Guy v. Judicial Nominating Comm'n, 659 A.2d 777 (Del.Super. 1995); Smith v. Berwin Bldrs., Inc., 287 A.2d 693 (Del.Super. 1972).
Matas, 171 A.2d at 918; James v. Getty Oil Co. (E. Operations), Inc., Del. Super., 472 A .2d 33, 38 (Del.Super. 1983); Borish v. Graham, 655 A.2d 831, 833 (Del.Super. 1994); Shultz v. Delaware Trust Co., 360 A.2d 576, 578 (Del.Super. 1976); Pullman, Inc. v. Phoenix Steel Corp., 304 A.2d 334, 335 (Del.Super. 1973).
Summary judgment "may not be granted under [Rule 56] unless there are no material issues of fact." The moving party bears the burden of demonstrating that. The non-moving party then must present evidence showing a genuine issue of fact for trial. If the record reveals that a material fact is in dispute, summary judgment may not be granted. The only time that summary judgment may be granted where a material dispute of fact exists is when the court considers the disputed fact in the light most favorable to the non-moving party and even in that light summary judgment is appropriate. The standard is not in issue, and the parties agree that the case should be decided without a trial.
Moore v. Sizemore, 405 A.2d 679, 680 (Del. 1979).
Matas, 171 A.2d at 918; see also Ebersole, 180 A.2d at 469-470; Adams v. Kline, 239 A.2d 230, 233 (Del.Super. 1968); Bradford, Inc. v. Travelers Indem. Co., 301 A.2d 519, 522 (Del.Super. 1972); Borish, 655 A.2d at 831 (Del.Super. 1994).
See Metropolitan Convoy Corp. v. Chrysler Corp., 173 A.2d 617, 623 (Del. 1961); Martin v. Nealis Motors, Inc., 247 A.2d 831 (Del. 1968); Murphy v. Godwin, 303 A.2d 668, 672-673 (Del.Super. 1973); Bryant v. Federal Kemper Ins. Co., 542 A.2d 347, 348 (Del.Super. 1988).
Ebersole, 180 A.2d at 470.
B. Contract Interpretation
The parties agree that under Delaware and Canadian law, contract terms are given their plain meanings. Only if the words are not plain may the court look to interpretive aids, such as extrinsic evidence, in order to glean the contract's meaning. Moreover, it is understood that a contract's ambiguity is not established merely because the parties disagree about its meaning. The parties further agree that the applicable contract law requires the court to consider a disputed contract as a whole. The court must not fasten on a few words to the exclusion of everything else in the contract.
Hallowell v. State Farm Mut. Auto. Ins. Co., 443 A.2d 926 (Del.Super. 1982) (holding that a contract is ambiguous only when the controversial provisions lend themselves to different interpretations or have different meanings. Accord Rhone-Poulenc, 616 A.2d 1196 (Del. 1992); See also O'Brien v. Progressive Northern, Ins. Co., 785 A.2d 281 (Del. 2001) (holding "An insurance contract is not ambiguous simply because the parties do not agree on the proper construction.")
This situation also smacks of one where the parties to a contract have omitted a missing term. In this instance, they failed to allocate specifically the burden caused by the recapture of the tax on Weston's excess loss account. The Delaware Supreme Court has addressed the courts' role in supplying contractual terms. Generally, under Delaware law, it "is not the proper role of a court to rewrite or supply omitted provisions to a written agreement." In narrow contexts governed by good faith and fair dealing, however, the Court recognizes "the occasional necessity" for supplying omitted terms "so as to honor the parties' reasonable expectations." The Court warns that such instances "should be rare and fact-intensive, turning on issues of compelling fairness."
Cincinnati SMSA Ltd. Partnership v. Cincinnati Bell Cellular Sys., 708 A.2d 989, 992 (Del. 1998).
Id. (citing DuPont v. Pressman, 679 A.2d 436 (Del. 1996).)
Cincinnati SMSA Ltd. Partnership, 708 A.2d at 992.
Treatises on contracts encourage courts to supply missing terms, in order to maintain contracts when parties clearly wish to be bound. Generally:
If the parties have concluded a transaction in which it appears that they intend to make a contract, the court should not frustrate their intention if it is possible to reach a fair and just result, even though this requires a choice among conflicting meanings and the filling of some gaps that the parties have left.
Joseph M. Perillo, Corbin on Contracts § 4.1, at 533 (1993).
The Commentary further provides:
The fact that parties have left some matters to be determined in the future should not prevent enforcement, if some method of determination independent of a party's mere "wish, will and desire" exists . . . .
Id.
The Restatement of Contracts states:
When the parties to a bargain sufficiently defined to be a contract have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances is supplied by the court.
Restatement (Second) of Contracts § 204 (1981).
The Comment elucidates:
But where there is in fact no agreement, the court should supply a term which comports with community standards of fairness and policy rather than analyze a hypothetical model of the bargaining process.
Id. at Comment (d).
This is not truly a missing term situation because the contract generally provides for taxes and, by implication, it leaves the tax on Weston's excess loss account for Weston to pay. Nevertheless, the rules for supplying a missing term provide a nice backdrop for this case.
Here, the parties each intended that the other would pay the tax, and they stand by the contract as written. The sale of Eddy is a done thing and the parties simply are looking to the court to settle their argument about who owes the tax. Thus, the court's analysis will not pretend to turn on the parties' intent. Instead, the court will read the contract reasonably and consider its meaning, in context. The court will interpret the contract in a way that respects its words, and which also makes sense. As discussed next, the court is satisfied that viewed in context the agreement's meaning is plain enough and the case can be decided fairly, without further fact-finding or resort to extrinsic aids.
IV.
The court understands that Eddy's sale triggered the recapture and, but for the sale, Weston would not have had to pay tax on the income it sheltered under Port Huron Fiber's losses. So the tax is related to the stub period in that narrow sense. Even so, the disputed tax obligation was spawned by Weston's pre sale use of its subsidiary's losses to its financial advantage. The tax obligation was triggered by Eddy's sale, which by definition happened during the stub period. But the disputed obligation represents a recapture of taxes that Weston saved through its long-term ownership of Eddy. There is no substantive relationship between the disputed tax and the stub period. According to Weston, Domtar basically agreed to pay Weston's back taxes and the obligation is established through the tax's timing.
Weston's syllogism, in the court's words, is that under the contract, Domtar must reimburse Weston, through Eddy, for all federal taxes related to the stub period. The federal tax on Weston's excess loss account was triggered during the stub period and but for Eddy's sale to Domtar, Weston would not have had to include the account in its consolidated return. Therefore, the tax was related to the stub period and Domtar must reimburse Weston. The syllogism is too pat.
Eddy was a large, on going business. The parties knew that it would incur assorted taxes during the seven month stub period. The parties now agree that taxes on Eddy's operations during the stub period exceeded $3,000,000. The tax schedule established Weston's and Domtar's obligations relating to reporting and paying those taxes. That is what the agreement as to taxes basically had to address. To be complete, the contract did not have to reallocate Weston's obligation to pay the recapture tax.
The tax schedule served to meet a clearly anticipated desire to apportion liability for Eddy's taxes during the stub period. Domtar plainly agreed to pick up that tax. There is no language in the tax schedule directly supporting Weston's claim that Domtar not only agreed to reimburse Weston for taxes spawned by Eddy, but also for tax benefits claimed by Weston for years before the stub period.
The tax schedule's first sentence is Weston's promise to file a consolidated tax return, including Eddy, and to pay all of Eddy's taxes for the stub period. Weston also promised to include any excess loss account in its return. Those promises establish that Weston agreed to meet its obligations under the tax code, which included Weston's reporting any excess loss account.
Because Weston was legally obligated to include Eddy and Weston's excess loss account in its consolidated return already, Weston dismisses the notion that the first sentence contains a meaningful promise on Weston's part. That, despite the sentence's wording: Weston will include Eddy's income in its consolidated tax return. Under Weston's view, the first sentence actually "defines what the parties regard to be the taxable income of Eddy for the purpose of calculating Domtar's obligation." The first sentence, however, is not defining and even if Weston merely were acknowledging its existing reporting obligations, that alone serves a useful purpose.
The first sentence assures Domtar, as Eddy's new owner, that the federal tax collector would not surprise Domtar by turning to Eddy, a member of Weston's consolidated group, for any of the consolidated group's taxes. The first sentence leaves Weston with no way to try and shift its reporting obligation to Eddy and Domtar or to evade Weston's obligations to report and to pay the tax on Weston's excess loss account in Eddy's shares, in the first instance. The court cannot read Weston's promise to include its excess loss account in its tax return as a way to define Domtar's financial burden.
In contrast to the clear assurance by Weston that it would include the income on its return, the first sentence contains no promises by Domtar whatsoever. The first sentence, by itself, certainly does not amount to Domtar's promise to reimburse Weston for any of its back taxes, including Weston's excess loss account. Again, the court rejects Weston's invitation to read a sentence that is phrased as a clear promise by Weston so as to include, as well, a subtle clarification of Domtar's reimbursement obligation that appears two sentences later. The first sentence is what it appears to be — Weston's promise to report and to pay its taxes, nothing more.
The second and third sentences are not controversial. The second sentence is Domtar's promise to give Weston tax information about Eddy necessary for Weston to carry out its promise made in the preceding sentence. And the third sentence merely is Domtar's promise to provide the information promptly.
The fourth sentence contains Domtar's only direct promise to pay any federal tax. Domtar does not promise flatly to reimburse Weston for all of its tax obligations related to the deal. Nor does Domtar expressly promise to reimburse Weston for any tax imposed on Weston's excess loss account, or on the negative capital account in the event of a § 338(h)10) election. Instead, Domtar first agrees to reimburse Weston for federal income tax, limited to taxes relating to the stub period. It is that limited shift of Weston's tax burden that Weston reads expansively in its favor. In other words, were it not for the reimbursement clause in the fourth sentence, Weston would have no claim to any reimbursement. Although the reimbursement clause clearly shifts some tax onto Domtar, the court is unwilling to stretch the clause in order to shift more tax onto Domtar. The reimbursement clause's chosen language is clear enough, but only up to that point.
In the fourth sentence, Domtar further agrees to calculate any reimbursement without regard to Weston's consolidated return. Both sides ask the court to read too much into the fourth sentence's specification that Domtar's reimbursement "would be calculated as if Eddy was filing its return on a separate company basis." That phrase merely describes how the promised reimbursement would be calculated, or to adopt Weston's characterization, the phrase "is a computational device . . . ." It does not expand or limit Domtar's duty to reimburse.
Eddy started out as part of Weston's consolidated group. Thus, it could be argued that Eddy's tax obligations and Weston's were coextensive. At a minimum, therefore, the phrase limited Domtar's potential reimbursement obligation. While the court will not take the phrase to make Domtar's case, it is a limitation on Domtar's exposure and the court sees no way that the phrase advances Weston's position. Even if Domtar reads too much into the phrase, which it does, reading the phrase as Domtar suggests does not "render meaningless the first sentence's inclusion of excess loss account income in the definition of Eddy's income," as Weston argues. Nor is it "at odds with the commercial reality." The tax schedule had to address the fact that Eddy's sale meant its deconsolidation, and that is what the second part of the fourth sentence does.
The fifth sentence is Domtar's agreement to gross-up any reimbursement. Because the court concludes that Domtar does not owe any reimbursement beyond the amount that Weston already took and kept, it is not necessary to address the gross-up provision. Finally, in vivid contrast to Domtar's more limited promise to reimburse Weston only for federal taxes related to the stub period, Domtar agrees in the second paragraph's sixth and last sentence that all state and local taxes, past and present, are Domtar's responsibility. The final sentence in paragraph 2 underscores the court's basic point. Domtar's promise there is plain and unequivocal. That is the sort of contract language that clearly binds one party to pay the other's taxes.
Taking everything presented so far into account, to side with Weston the court would have to find that Domtar promised not only to pay Weston for Eddy, but also, in effect, to reimburse Weston for taxes that Weston owed on income generated by its subsidiaries, but which it deferred until Domtar appeared. While the parties could have structured the deal to accomplish that counterintuitive result, such an unexpected apportionment of tax obligations should stand out. Here, the court does not see plain language supporting Weston's ambitious claim. This contract's plain language leaves the disputed tax burden where one logically would expect to find it — on the party that owed the tax, Weston.
Finally, one other argument by Weston must be considered directly. The § 338(h)(10) election unquestionably precipitated a tax liability. Under paragraph 10, Domtar "expressly agreed that all liabilities of Eddy prior to the Effective Date . . . shall be the responsibility of [Domtar]." Thus, Weston alternatively invokes paragraph 10. The short, technical answer offered by Domtar, which assumes that the liability was Eddy's and not Weston's, is that the liability arose on the effective date and not prior to it. The obligation created in paragraph 10 is not pegged to the stub period, which includes the effective date. Domtar's paragraph 10 obligation is one day shorter than its paragraph 2 obligation.
Substantively, paragraphs 2 and 10 must be read in tandem. Even Weston does not argue that those paragraphs apportion the tax obligation differently. Everyone agrees that the contract's approach to taxes is consistent. The parties never meant that Domtar's obligation to reimburse would depend on whether the transaction was treated as a sale of Eddy's shares or of its assets. The parties initially assumed that the deal involved a sale of shares. They also provided for the possibility of the § 338(h)(10) election. Since Domtar never promised to reimburse Weston for the tax on Weston's excess loss account in Eddy's shares, it follows that Domtar did not agree to assume that responsibility after a § 338(h)(10) election.
V.
For the foregoing reasons, as a matter of law and without fact-finding, Weston's dispositive motions are DENIED. Domtar's motion for summary judgment is GRANTED.
IT IS SO ORDERED.